Asda sells off supermarkets for almost £600m as it scrambles to reduce debt pile

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Asda has sold off dozens of supermarkets as its private equity owners race to reduce a £3.8bn debt pile.

The struggling retailer, majority owned by TDR Capital, said on Thursday it has struck a £568m deal with two buyers to offload 24 supermarkets and one depot, in the latest move to raise funds from its estate.

Under the agreement, Asda is selling 20 stores and a depot in Leicestershire to Blue Owl, the Wall Street private credit group, for £467m. Ten of those have been purchased by Blue Owl through a joint venture with Supermarket Income REIT.

Another 10 sites have been sold to investment managers DTZ for £101m.

Asda will continue to occupy the sites through a so-called sale-and-leaseback, with the retailer signing up to a 25-year lease with an option to extend for another 10.

An Asda spokesman said: “Asda’s property strategy is centred on maintaining a strong freehold base while also taking a considered and selective approach to unlocking value from our estate where appropriate.”

They said the deals “reflect that approach, enabling us to realise value from the sites while retaining full operational control”.

The spokesman added that the proceeds would be used to “fund our ongoing capital investments in the business and reduce net leverage”.

Asda is expected to use part of the cash to help repay a looming debt repayment to its former American owner Walmart.

According to Moody’s, the company has around £1bn of liabilities to address by 2028, including a £900m bill owed to Walmart.

Timo Fittig, a Moody’s analyst, said the deal “enables the company to address upcoming debt and preference share maturities with the proceeds raised”.

However, he said it would “increase its long-term debt burden through the additional leases”, warning that the lease liabilities would likely exceed the amount of proceeds raised.

Mr Fittig said: “As such, the transaction will likely increase the company’s total debt position, including leases, even if it uses most of the proceeds to repay debt.”

Some of the funds are also expected to go into Asda’s turnaround drive as Allan Leighton, its chief executive, comes under mounting pressure to win back customers.

In March, Mr Leighton said he had been given a “war chest” to kickstart a proposed turnaround, hailing plans to invest in price cuts, product availability and improving stores.

However, his revival has yet to yield results, with the latest industry figures indicating that Asda’s market share is at a record low.

Worldpanel figures earlier this month showed Asda’s sales slump deepened in the 12-week period to Nov 2, meaning its share of the market slipped to 11.8pc from 12.7pc 12 months ago when Mr Leighton took charge.

Despite the deal freeing up more cash for Asda, Shore Capital analyst Clive Black said: “I do not believe that Asda will have wanted to undertake further sale and leaseback activity.”

“Chipping away at that asset base may reduce indebtedness but it also increases operational gearing as it grows the annual rent roll.

“If Asda was trading well, that would not be a matter of great concern, but it clearly is not.”

The deals also threaten to increase its exposure to the private credit market through Blue Owl.

Earlier this week, Blue Owl called off a merger of two of its private credit funds amid mounting scrutiny over potential cracks appearing in the so-called shadow banking sector.

Shares in Blue Owl are down 26pc over the last six months.

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